FED SNIPS RATES AGAIN

The Federal Reserve's sixth interest-rate cut of the year signaled Wednesday that the nation's central bank has abiding concerns about the country's economic outlook -- worries shared on the front lines of Orlando's economy.

"Anybody in their right mind would write this year off," said Mark Moravec, general manager of the Orlando Marriott Downtown.

The corporations that account for the bulk of Moravec's hotel guests have already cut deeply into their 2001 travel budgets. As a result, he has been forced to slash his corporate rate by 20 percent to 25 percent and offer other packages to keep "heads in the beds."

Although he professes to see a light at the end of the tunnel, "it's only a penlight." And he concedes that the sparkle he spies is based more on hope than on something more concrete.

The Fed, too, seems to be writing off the rest of this year.

Short-term rate cuts -- the central bank's primary tool for modulating the economy -- generally take six months or more to make themselves felt, economists say. So Wednesday's cut suggests the Fed is expecting continued weakness, at least through the rest of the year.

And the size of the reduction -- a quarter-point instead of the now-familiar half of a percentage point -- is likely to have only a minimal effect on consumers' borrowing costs. Businesses, which generally depend on large amounts of borrowed money, can expect an immediate savings, as major banks quickly followed the Fed's action by lowering their prime lending rates.

All five of the Fed's previous cuts in the federal-funds rate -- the overnight rate on loans between banks -- were half a point. That means the central bank's Federal Open Market Committee has brought short-term rates down 2.75 percentage points so far this year -- the bank's most aggressive anti-recession campaign in almost two decades.

The federal-funds rate now stands at 3.75 percent, its lowest in seven years.

In Miller's view, it's too late to try to keep the nation out of a recession: We're there, he reckons.

"I argue that we are in recession already, that we were in recession in the first quarter," he said. Miller dismisses the classic definition of a recession as two successive quarters of economic contraction -- something that hasn't happened yet in this business cycle -- and instead settles for evidence of shrinking production, which abounds. He cites sharp drops in corporate profits and a U.S. manufacturing sector that has been getting clobbered for nearly two years.

OTHER VIEWS

Not everybody agrees. The chief economist at Charlotte, N.C.-based First Union Corp., David Orr, is more cautious.

"We still don't know" whether the country has drifted into recession, Orr said. Still, he's hardly a bubbling optimist. "The probability of a recession is 49 percent, meaning it's as high as it can get without actually predicting a recession," he said.

Orr, too, considers plunging corporate profits among the stronger signs of economic contraction, along with the growing number of layoffs across the country. But a strong housing market "and the quick -- the unbelievably quick -- reduction in inventories" argue against a recession, he said.

Swift inventory reduction has become easier for many companies in the computer age, when inventories can be assessed instantly and companies can turn the spigot of production or purchasing on and off rapidly.

Such signs of resilience, along with a federal income-tax rebate that is expected to pump $40 billion into the U.S. economy by September, suggest a recession may still be avoided, Orr said.

The housing market has so far avoided weakness nationally and here in Central Florida, where construction is a key driver of the local economy.

New-home sales rose nationally in May by 0.8 percent, the third increase in four months. Locally, the housing market has remained strong, too.

"Everybody talks about layoffs, but there's still job creation" in Central Florida, said Larry T. Nicholson, Orlando president of the Ryland Group, one of the nation's biggest builders of single-family houses. "We're still seeing good traffic, good qualified buyers."

He said the single-family home market has been flat lately, but the middle and low ends of the market -- houses selling for $200,000 or less -- has remained steady. "Once you get above 200 [thousand dollars], you're starting to see a little softness."

MORTGAGE RATES MAY RISE

Whatever the reasons for the strength of the housing market nationally and locally, the latest reduction in short-term interest rates is not likely to have much effect on it. Mortgage rates often do not move in tandem with short-term rates, said Doug Duncan, chief economist of the Mortgage Bankers Association of America in Washington, D.C.

In fact, his association expects average rates on 30-year, fixed-rate mortgages to creep up slightly in coming months, from 7 percent in the first quarter of this year to 7.1 percent in this quarter and next.

Rates more likely to be affected immediately by Wednesday's reduction in the federal-funds rate are those on short-term loans such as revolving business loans and certain kinds of consumer debt, including auto loans and some credit cards.

But on a $12,000 car loan, a savings of one-quarter of one percent would amount to only about $2.50 a month.